• 2-Minute Article
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  • Jun 01, 2017

6 Retirement Healthcare Costs to Prepare for Now

Take a look at how much you might spend, so you can decide how much to save.

Whether you’re in retirement or it is still years away, it’s important to factor in future healthcare costs so they don’t derail your plans. A study shows that 84% of Americans are concerned about paying for the cost of healthcare while in retirement.1

While everyone’s healthcare needs are different, most retirees face some common expenses. A retiring 65-year-old couple will need a total of $260,000 to cover medical costs throughout a 20-year retirement – and they should expect those costs to rise.2 In recent years, medical costs have risen more quickly than inflation – roughly 6% annually.3 It’s important to account for costs to maintain your health, one of your most important assets.

Here’s what to plan for – and a few steps you can take now to help be prepared and keep your financial goals on track:

1. Medicare Premiums

Most people don’t have to pay a premium for Medicare Part A, which covers major expenses such as hospital visits, but you will have to pay a yearly deductible. You may also opt to purchase additional Medicare coverage:

  • Medicare Part B covers medically necessary and preventative services such as doctor visits, medical supplies and outpatient care. Premiums vary according to your income; in 2017 they range from $134 to $428.604 per month.

  • Medicare Part D covers prescription drugs. The average premium in 2017 is $34 per month5 — though premiums increase for retirees with higher incomes.

  • Medicare Advantage Plans, also known as Medicare Part C, are offered by private insurers. These plans provide at least the same coverage as Medicare Part A and B, but often cover additional services such as dental and vision for an additional premium on top of your Part B monthly premium. Costs vary widely depending on your location, the range of services coverage, and co-pays and deductibles, but in 2017 the average monthly premium is estimated to be $32.59.6

2. Prescription Drugs

Even with prescription drug coverage, prescription drugs could cost an average of $80 per month out of pocket.7

3. Dental Care

Medicare A and B does not cover most dental costs, which average $45 per month.8

4. Vision Care

Medicare A and B also doesn’t pay for routine eye exams, glasses, or contact lenses. The average cost for an annual eye exam and glasses is $457 per year.9

5. Extended Medical Care

Medicare Part A does cover most hospital stays, but typically only the first 100 days of skilled nursing care. An illness or injury that requires a longer period of care will result in out-of-pocket payments.

A stay in a skilled nursing facility costs about $220 per day, or $6,600 a month.10

6. Long-Term Care

Age or illness could make it difficult to manage basic daily tasks, such as bathing or eating. An estimated 70% of 65-year-olds will need long-term care during their lifetimes.11

  • An assisted living residence cost an average of $3,600 per month in 2015.12

  • The services of in-home caregivers who assist with personal care and household tasks cost about $3,52013 per month.

  • Long-term care insurance can cover some of these costs, but must be purchased before you develop a serious medical condition. Premiums vary depending on coverage and your age, but average about $205 per month for a 55-year-old couple and $281 for a 60-year-old couple.14

Consider a range of options to cover healthcare costs

Talk with your financial professional about covering these and other potential health-related costs in retirement. He or she may recommend financial tools, including:

  • A health savings account (HSA). Money you invest through an HSA will grow tax-free until you withdraw savings for eligible healthcare expenses.

  • An Annuity. By investing a portion of your savings in an income annuity, you can create a reliable, lifelong income stream that doesn’t fluctuate with the stock market. For example, a 60-year-old could use $100,000 to purchase a deferred income annuity and receive nearly $10,000 per year of income, beginning at age 70.15 He could use that income to help cover his healthcare costs, or to help pay for other fixed or emergency expenses.

  • A permanent life insurance policy. Some policies provide access to supplemental cash value, which you can use to pay unexpected healthcare expenses. In addition, some policies offer riders to help cover expenses like long-term care and chronic or terminal illness.

The right mix of financial tools can help you prepare for these and other health-related costs that come your way.

To better understand different types of annuities and related terms, download the Annuities Language Glossary created by Alliance for Lifetime Income, a nonprofit educational organization committed to making the language of annuities simpler.

Download Glossary

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